WASHINGTON (MNI) – The following is the second and final part of
excerpts from the U.S. Energy Information Administration’s December
Short-Term Energy Outlook published Tuesday:

U.S. Liquid Fuels Consumption

Projected total U.S. liquid fuels consumption in 2011 falls by 260
thousand bbl/d (1.4 percent) from 2010. Motor gasoline consumption
accounts for most of the projected decline for the year, shrinking by
230 thousand bbl/d (2.6 percent). EIA expects total liquid fuels
consumption to increase by 120 thousand bbl/d (0.6 percent) to 19.0
million bbl/d in 2012.

U.S. Liquid Fuels Supply and Imports

Domestic crude oil production increased by 110 thousand bbl/d in
2010 to 5.5 million bbl/d. Projected production increases by roughly 200
thousand bbl/d in 2011 and by a similar amount in 2012. This rising
trend in production is driven by increased oil-directed drilling
activity, particularly in on-shore shale formations. The number of
on-shore oil-directed drilling rigs reported by Baker Hughes increased
from 768 at the beginning of 2011 to 1,113 on December 2, 2011.

EIA expects that the United States will be a net exporter of
petroleum products in 2011 for the first time since 1949 with gross
product exports averaging 0.3 million bbl/d more than gross product
imports (product exports averaged as much as 2.5 million barrels per day
less than gross imports in 2005). EIA expects that the United States
will remain a net product exporter of about 0.2 million barrels per day
in 2012.

The share of total U.S. consumption met by liquid fuel net imports
(including both crude oil and refined products), which has been falling
since 2005, is expected to be 45 percent in 2011 and 46 percent in 2012.
The 220 thousand bbl/d drawdown in commercial and government stocks in
2011, which contributed to lower imports, is reversed in 2012 with
stocks rising by an average 40 thousand bbl/d.

U.S. Crude Oil and Petroleum Product Inventories

Distillate fuel oil stocks fell by 24 million barrels between Sep.
30, 2011 and Nov. 18, 2011. Distillate fuel inventory at the end of
November 2011 was an estimated 139 million barrels, 23 million barrels
lower than at the same time last year and 10 million barrels below the
average for that month between 2006 and 2010. Total motor gasoline
stocks at the end of November 2011 were an estimated 211 million
barrels, down 2 million barrels from last year but 2 million barrels
higher than the previous 5-year average for that month. Projected total
distillate and motor gasoline inventories at the end of 2012 are
expected to average about 2 million barrels lower and 3 million barrels
higher, respectively, than their previous 5-year averages.

Commercial crude oil inventory levels ended November 2011 at an
estimated 334 million barrels, 18 million barrels below last year but 5
million barrels above the previous 5-year average for that month.
Projected commercial crude oil stocks end 2012 at 320 million barrels,
about 4 million barrels above the previous 5-year average.

U.S. Petroleum Product Prices

EIA forecasts that the annual average regular-grade gasoline retail
price, which was $2.78 per gallon in 2010, will be $3.53 per gallon in
2011 and $3.45 per gallon in 2012. The higher retail price in 2011
reflects not only the higher cost of crude oil but also changes in the
average U.S. refinery gasoline margin (the difference between refinery
wholesale gasoline prices and the average cost of crude oil), which
increases from $0.34 per gallon in 2010 to $0.47 per gallon in 2011,
then declines to $0.35 per gallon in 2012.

EIA expects that on-highway diesel fuel retail prices, which
averaged $2.99 per gallon in 2010, will average $3.85 per gallon in both
2011 and 2012.

Between 1990 and 2004 annual average wholesale gasoline prices
ranged from 5 cents per gallon to 11 cents per gallon above wholesale
diesel prices. Beginning in 2005, wholesale gasoline prices fell below
wholesale diesel fuel prices in all years except 2009 as world demand
growth for diesel fuel, primarily in the emerging economies, outpaced
gasoline demand growth. In 2010 gasoline prices fell below wholesale
diesel prices again as world demand growth for diesel fuel picked up.
EIA expects the gasoline wholesale price to weaken further relative to
diesel prices, averaging 17 cents per gallon below diesel in 2011 and 22
cents per gallon below diesel in 2012.

Natural Gas

U.S. Natural Gas Consumption

EIA expects that total natural gas consumption will average 67.2
billion cubic feet per day (Bcf/d) in 2011 (U.S. Total Natural Gas
Consumption Chart). The increasing use of natural gas in the industrial
and electric power sectors accounts for most of the increase in total
consumption this year, with projected growth rates of 2.3 percent and
2.2 percent, respectively. Projected total natural gas consumption
increases by 1.7 percent in 2012 to 68.4 Bcf/d.

U.S. Natural Gas Production and Imports

EIA expects U.S. marketed natural gas production to average 65.9
Bcf/d in 2011, a 4.1-Bcf/d (6.6 percent) increase over 2010. All of this
growth comes from higher onshore production in the lower 48 States,
which more than offsets a year-over-year decline of 1.2 Bcf/d (20
percent) in the Federal Gulf of Mexico. EIA expects that total marketed
production will continue to grow in 2012, but at a slower pace,
increasing by 1.8 Bcf/d (2.8 percent).

Growing domestic natural gas production has reduced reliance on
natural gas imports and contributed to increased exports. EIA expects
that pipeline gross imports of natural gas will fall by 6.5 percent to
8.5 Bcf/d during 2011 and by another 3.6 percent to 8.2 Bcf/d in 2012.
Projected U.S. imports of liquefied natural gas will fall from 1.2 Bcf/d
in 2010 to 0.9 Bcf/d in 2011 and to 0.7 Bcf/d in 2012. Pipeline gross
exports to Mexico and Canada are expected to average 4.3 Bcf/d in 2011
and 4.4 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.

U.S. Natural Gas Inventories

Working natural gas inventories increased by about 390 Bcf during
October 2011, a record for that month, and reached 3,851 Bcf on November
25, also a new record high for that week. This winter began with fairly
mild weather. Heating degree-days are estimated to be down by 8 percent
in October and by 12 percent in November from the 30-year (1970-2000)
normal levels. The warm weather combined with the strong production
growth this year has enabled stocks to reach such high levels. EIA
expects that working natural gas inventories will total about 1.8 Tcf at
the end of March 2012. This represents a withdrawal of 2.0 Tcf over the
current heating season compared with a withdrawal of 2.3 Tcf last
season.

U.S. Natural Gas Prices

The Henry Hub spot price averaged $3.24 per MMBtu in November 2011,
32 cents lower than the October 2011 average and 66 cents lower than the
September 2011 average. November marks the fifth consecutive month in
which Henry Hub prices have fallen. This month’s Outlook lowers the 2011
forecast by 7 cents to $4.02 per MMBtu and lowers the 2012 forecast by
43 cents to $3.70 per MMBtu. Strength in domestic production and
abundant storage supplies have led to relatively low prices this year
and EIA expects supply growth to continue.

Natural gas futures prices for February 2012 delivery (for the
5-day period ending December 1, 2011) averaged $3.63 per MMBtu, and the
average implied volatility was 35 percent (Market Prices and Uncertainty
Report ). The lower and upper bounds for the 95-percent confidence
interval for February 2012 contracts are $2.79 per MMBtu and $4.73 per
MMBtu. At this time last year, the February 2011 natural gas futures
contract averaged $4.29 per MMBtu and implied volatility averaged 45
percent. The corresponding lower and upper limits of the 95-percent
confidence interval were $3.06 per MMBtu and $6.03 per MMBtu.

(2 of 2)

** Market News International Washington Bureau: 202-371-2121 **

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